A SOUND INVESTMENT

NZ Truth, Issue 1202, 13 December 1928, Page 18

A SOUND INVESTMENT

JnaneialJJsriews

Affairs of The National Tobacco Company, Limited ip) ',' water" the paid-up capital by ovsr 200 per cent. -and on the increased amount to pay 15 per cent, dividend m addition to carrying 1 half the year's profits to reserve, is the latest! achievement of sunny Napier's one-man tobacco manufacturing company, which as a money-maker appears to be far ahead even of breweries.

'THERE have been great doings m 1 the affairs of the company during the year under review, and it would appear that considerable hostility was exhibited by a section of shareholders to the real man of the company — Mr. Gerhard Husheer — receiving 35,000 fully paid up shares m consideration of past and future services rendered to the company. The general opinion of disinterested persons was that had it not been for Mr. Husheer's expert knowledge of tobacco nnd its manufacture, plus his marked business acumen and ability, the company would halrdly ha,ve survived its first year of existence owing 1 to the stress of internal' dissension. With the general opinion this writer is m thorough accord. "Fiat Lux"-be-lieves that Mr. Husheer ; is entitled to the reward which has. been made to him. After all, , the cardinal point of the matter is . th'at\.h« personally created a huge and highly successful m'anufacturjnerand marketing business m the face of fierce and red-hot competition. ; Now let' us see what has been :done regarding changes , in'-.- the {capital account and distribution of bonus shares. : A year ago the nominal or authorised capital stood at. £50,000. Of this, 42,288 shares had been ' allotted—^2By4ll as ordinaries and 13,877 as preferreds! On the ordinaries £25,461 had been paid, leaving £2950 uncalled and represented by 10/- per share on 5900 shares. On the preferreds £10,332 had been paid up, leaving 10/- per share on 7090 shares uncalled — equal to £3545. ' At the same date the reserve stood at £7342 and the undistributed profits amounted to £17,812 after payment of the 12y 2 per cent, and 8 per cent, dividends on the ordinaries and preferreds respectively for the previous /year. On April 26, 1928, an extraordinary general meeting of the company was held, at which the authorized capital was increased to .£200,000: and a contract was entered into with Mr; Husheer

dations of this-business have been well and truly laid. tGross Total Exes. *Net Ypar. earnings, inc. Deprn. Protit.

t This is from sales of tobacco only. * Includes interest and transfer fees. • ■'■ ' tV; Thus in.'the four 'years*, since, the close of the 1924 financial year the company's gross- learnings- have^ multiplied six and a-half, + expenses have gone up four arid a-half. times,'whilst tne net profit has multiplied nineteen times. '.' ' ' Two years.ago the provision, for income tax ani6unfed> to '■■£ 1200, whilst m .1928 no:'less/than £18,000 is provided under this heading 1. The balanc'^sheet herewith is. indeed a thing- of. joy and beauty ' m every sense, .but" tl)e 1929 - accounts should show substantial-Improvement m every item. • ; .. Taking the-item's-seriatim, the' nominal capital is 1 now £200,000 .m -£l shares and .124,341 shares are issued, a.nd are all fully paid—£ 112.1C1 are prdlnary .shares and the balance of ' £ 12,180 iis m 8; per' cent. *p>e£erreds. Actually, the paid-up capital has increased during the year by £58,548, and now stands at £124,341. With reserves, this would appear to be likely to fulfil the company's requirements for years to come, unless qf course It should decide to go m for growing its own leaf. . . After payment of the dividend for the year and transferring £22,245 to reserve, the balance of the profit and loss wijju be £4550 to carry forward to 1929, and the reserve account will stand at--£40,000 —a very nice nest.egg for-one year's effort. . .-.■ Dealing with the assets, the property and ''plant-' account- has been by " £19,715; presumably .for the two brick • bond- stores which' Were built

whereby he was to be issued with 35,000 £1 shares fully paid up out of the new issue. In addition it was decided that all shareholders should receive bonus shares fully paid up to a value equal to their existing interest' m the company. - . Now this very interesting- programme called for funds to the extent of £70,793, made up as under: — G. Husheer contract shares .. £35,000 Fullj'-paid-ups issued to holdr ers of fully paid shares 29,298 Issues to holders of 10/- paids 2,950 i Issues to holders of 10/- paids preference shares 3,545 £70,793! As already pointed out, the company at this date had only £7342 m -the reserve account and a total of £17,512 of undivided profits. To meet the balance of £45,701 required to' make this big distribution, a new asset account was created, termed "goodwill, patent rights and. trade marks," to which this sum was, debited. The credit was carried to the bonus account, where it was added to the reserve £.7342 and the undivided profits of £17,812, and then used to pay' far the issue of, bonus shares. ' . ' V Taking this transaction at face value only, it certainly appears to be all wrong for a company to,' pay huge bonuses to its shareholders' by' writing up such intangible accounts as goodwill. In the majority of cases such a proceeding would probably be "the beginning of the end of the concern, but m the case under review the optimism of the directors is, m this writer's opinion, fully justified by the figures disclosed m the accounts now under review. It works out m this way:. The profits, for the year amount to . . £38,058, v and after providing for a 15 per cent, dividend on ordinary shares and 8 per cent, on preferreds there' is a surplus of profit of £27,095. . , Further shares m the company have also been sold during the yea*: at a high premium, which realized alto-r gether £17,755. ' ' In the balance-sheet now presented, whilst there is the new and intangible item of goodwill £45,701, there are also reserves totalling £44,850 to offset the amount. The goodwill; item .therefore.! could' immediately be written off , thj,e' accounts out of the preaent a'ceurmilated funds. . ■ ' ■' ' •.•*' Whilst on this point of earnings, it would appear opportune^td giye a- summary 'of this- firm's achievements to date m this direction, and the. figures below prove conclusively that the. f bun-'

i during- the year and extensions to the main factory. Stocks of raw and manufactured tobacco on hand are stated at £36,403, which represents an increase on last year of £23,919.. In this connection a very serious note of warning- is sounded by the chairman of directors, who m the annual report states: "With regard to the production of raw leaf,' Sufficient quantities are already being grown to meet all the requirements of the local market. Nelson growers alone received last season an aggregate of £50,000 m cash from us. That figure represents a vast amount of leaf, portion of which will have to be carried over into the .new..season. As things'are now, farmers not secured by contract, putting In crops on "spec.," the danger of overproduction is imminent, unless an outlet is found somewhere for the-surplus. The chances of export are of the poorest, m view of the over-production m other parts of the British Empire, especially Rhodesia, where millions of pounds of superb leaf go begging for want of a market." . Investors m tobacco-farming propositions should give heed to this warning, which is an authoritative one and .which emanates from a source which is disinterested and unprejudiced. .Advances to suppliers at £15,364 show an advance of £8159, and proves that the company takes a paternal interest m its suppliers, which cannot fail to react to the company's profit. {The next and last item of magnitude is. that of cash at bank, and this amounts, to £36,291, being an increase of £22,254 over last year. It is a curious thing about this concern, but usually its profit and loss balance is just about equalled, by its cash resources, which is more proof that its capital is fully adequate to its purposes. In conclusion, let this critic sum up by tendering a revised version of Bruce Bairnsfather's : "If you know a better investment go to it."

1924 .. 12,545 10,464 2,081 1925 .. 16,417 11,322 6,335 1926 .. 21,971 13,951 8,252 1927 ■.. 51,945 . 33,199 19,160 1928 . . 52.850 45,35.1 38.05S